HP: We’ve Been a Little Late to the Game, Admits Whitman; MSFT, INTC ‘Outright Competitors’

By Tiernan Ray

Hewlett-Packard (HPQ) CEO Meg Whitman took to the podium this morning to address analysts at the annual financial meeting.

HP shares surged 6%, or $1.32, at $22.05, after Whitman remarked that revenue would “stabilize” in the fiscal year 2014 beginning next month. She said the company saw an “acceleration” in 2015, without offering specific numbers.

Whitman’s sharpest remarks seemed reserved for the frank admission the company has been too slow in many cases, missing out on deals with large customers because it couldn’t “deliver the goods.”

“We have got to up our game substantially in how we do things at this company,” said Whitman. “We don’t always look carefully at how we can optimize our end-to-end processes. We’ve got to demand a consistent level of quality.”

Whitman said one CIO of a big company, one who is generally favorable towards HP, told her recently that “often we show up late” when HP pays a visit to talk about the latest technology with that customer.

“HP is just a little late to the game,” said Whitman. “We still have a lot of work to do in our go-to-market operations, our partners and our direct sales teams, at the appropriate speed.”

“I think we’re going to make real progress in 2014 in this critical area that leads directly to revenue.”

The admission HP has been late, and that “process” needs improvement, comes against a backdrop of a changing competitive landscape, with former friends in some senses foes, she said.

Whitman cited what she said was the dramatic change of “disruptive forces” in the IT industry that is putting pressure on parts of the business, such as the “personal systems” group that makes PCs.

“Wintel-based devices are being aggressively displaced by ARM-based PCs and mobile devices.”

“PCs are declining while tablets are growing.” She said such disruptive forces “are very real” and would continue.

But, she added, “I like our assets better than most of our competitors’ assets as we head into this new style of IT.”

Reflecting on progress this year, Whitman observed the company’s mid-point for net profit per share in the year ending this month is above what it was projected at a year ago at the last financial meeting. The company reached its stated goal of free cash flow this year of $5 billion early, back in Q2, putting the company on a path to free cash flow of $8 billion this year.

HP’s operating company net debt has been brought down to below the level it was at when her predecessor, Leo Apotheker, made the infamous acquisition of software maker Autonomy, in 2011, she noted. As a result, “We have a lot more flexibility to return cash to shareholders and to invest in our business.

Whitman also said the company had made “a lot of progress” in building “basic operational cadences” at HP following what she depicted as the disarray under Apotheker and the many CEO changes that had preceded her. “We had to build a lot of this from scratch,” she said, referring to better practices in how the company runs.”

“We recommitted to smarter innovation, with R&D spending expected to be in excess of $3 billion” this year, said Whitman. That, she said, was paying off in products and services aligned to the company’s strategy and how customers want to buy from HP.

Whitman said the company’s strategy can be summed up in a single sentence: “provide solutions for the new style of IT.” She referred to “enormous change” that comes only once every so often, which is prompting such a new style:

Whitman said the growing businesses, such as cloud computing products, including software-defined networking (SDN) switches, and the “Moonshot” line of servers, will help to offset the declining businesses.

“The reality is we are managing a portfolio of businesses, that, when managed properly, will position HP well into the future.”

The company’s “converged cloud” infrastructure for cloud computing was being led by networking equipment, where HP is the number two player, Whitman said, with “better engineering and better performance at lower cost,” a dig at Cisco Systems (CSCO).

She added, “The work we are doing in SDN leads the industry.”

Looking forward, Whitman said HP has identified the “top 40 country category pairs” that delver the most gross margin, and said “we’ve got to focus on those 40 pairs as if our life depended on it, because in many ways it does.” The company had also identified 30 “innovations” and 15 “growth markets.”

The company was becoming far better at “the art of exclusion” — what not to pursue — which would help it better target its markets and simplify processes, she said. Whitman noted the company’s use of Salesforce.com (CRM) and Workday (WDAY) cloud software to streamline operations.

“HP is a strong company with a proud heritage with some incredible opportunities in front of us,” said. “I feel confident we have the right strategy, the right set of assets, and the right leadership team to deliver.”

Whitman said there was a change of mood inside the company. “Our employees call it the will to win,” she said.

I also know our customers are cheering for us; they want us to win. They value the products and the services we provide. They have made enormous investments in HP technology, and they value our role in driving innovation in an industry where they see consolidation.

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There are 12 comments

OCTOBER 9, 2013 12:04 P.M.

Ganesh Iyer wrote:

morale in HP is lowest in history

OCTOBER 9, 2013 12:09 P.M.

AnonymousOne wrote:

Several previous HP CEOs ravaged, plundered, looted the company, all legal of course. Board members should be held accountable, recover their compensation, allotted stocks, and if possible even sue them personally, i.e. they need to pay share holders from their personal accounts; I know presently current laws do not allow such actions. Often board members are CEOs elsewhere, scratching each others backs. There needs to be share holders union for every company, so that share holders could speak with one voice, we need such system. We also need to appoint randomly selected from a qualified share holders pool to sit in the board room, who represents the company better than someone who holds shares valued a mere few hundred or few thousand dollars, and not rich. To such individual those few thousand dollars is like multimillion, it is all relative you know.

OCTOBER 9, 2013 12:10 P.M.

Anonymous wrote:

talk is cheap. they do NOT lead in SDN, their PCs are terrible in quality and bloatware, their networking product line is commodity, and their examples of innovation include starting open source software projects and randomly killing them. their contribution to the industry has dwindled to almost nothing.

OCTOBER 9, 2013 12:11 P.M.

Not from where I'm standing wrote:

Do you have figures and reputable sources to back that up? Because morale is much better than it used to be, both in experience and anonymous surveys.

OCTOBER 9, 2013 12:12 P.M.

Check wrote:

Do you have figures and reputable sources to back that up? Because morale is much better than it used to be, both in experience and anonymous surveys.

OCTOBER 9, 2013 1:40 P.M.

vrm wrote:

It is good that the CEO finally realizes that they have to compete and in order to do that, invest in R & D to develop products and services. Her predecessor systematically dismantled their business segments, aiming to replace them with off the shelf components from other vendors; that does not work for a co like HP - they need to evolve their own ecosystem.

OCTOBER 9, 2013 1:51 P.M.

Anonymous wrote:

HP is a very disappointing company.

They have had every chance and have squandered them.

HP went out of its way to break its strong relationship with Microsoft, and since then everything has just gone down hill.

In consumer they are a disaster, it really could not be much worse. Meg has her work cut out if she thinks those consumers who are also enterprise employees are going to see HP in any kind of a positive light.

awful fat bloated devices at high prices, and compromised products just leave me saying no on so many levels.

HP can take gold and turn into a waste product.

OCTOBER 9, 2013 3:31 P.M.

Anonymous wrote:

Yawn. And Yanwaroo folks. A real Yanwaroo.

But. With a new narrative. Yawn:-0

OCTOBER 10, 2013 12:41 A.M.

Anonymous wrote:

Just figuring this out, yup you're late

OCTOBER 10, 2013 2:04 P.M.

LongtimeHPr wrote:

I don't know who this person who commented that the morale is high. They must not work in the PC business! It's a bloodbath! We all hate our jobs, the way management treats us like 2 year olds, and now we all have to fill the freeways burning fossil fuel to come into the office to sit on the phone with people in other states or countries. The morale is NOT high and at it's worst I've ever seen in the 30+ years at HP. And, no, I'm not a dinosaur. They don't exist in the PC business. They eat their young!

OCTOBER 11, 2013 1:25 P.M.

Glasswire wrote:

It's intereesting to note that while HP knocks Intel and suggests they are heading for a bright new future with ARM processors in products like Moonshot, the reality is that the only competitive processors they can put in a Moonshot are Intel's low-power x86 processors. The ARM processors that were supposed to be so game-changing are not just poor performers in absolute performance, but they also do not match the Intel processors in performance per watt - which is what that ARM processors were supposed to be good at. So Moonshot can be good (use Intel processors) or be politically correct and hew to the ARM-is-better philosophy, but right now, HP can't make it do both.

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About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.